If you own your own business, over time two things are likely:
The best way to understand the advantages of a Split Dollar Policy is to understand how it is paid for, in comparison to a Traditional Policy.
Traditionally, Life Insurance is purchased with money out of the business owner's personal account. This money was likely paid as salary, which is heavily taxed as it moves from the business bank account to owners personal account.
With a Split Dollar Policy, the company loans the owner money to purchase the insurance policy, avoiding steep salary taxes. The owner only has to pay interest on the loan, which is typically less than the tax they would have otherwise incurred.
For the business, repayment of the loan is guaranteed by the Life Insurance policy, while the owner’s beneficiaries still receive the benefit from the policy tax-free if anything happens.
This type of Split Dollar Policy is called the Collateral Assignment Method and is typically reserved for people who are owners or shareholders in a business.
There is a second type of Split Dollar Policy called the Endorsement Method, which is for employees who are not shareholders. It is structured differently, but can still be used to increased expected ROI on the purchase of a life insurance policy. Typically, the Endorsement Method is used as a perk tied to compensation, severance, or stock purchases. However, I'll save the finer details for a separate post.
Each Split Dollar Insurance Policy has their own tax nuances and benefits. To learn more, email us or consult a tax professional.
Insurance isn't complicated, as long as it's explained :)
Subscribe to the newsletter and stay up to date with HR, Payroll, and Benefits.
Subscribe and stay up to date with COVID-19 related policies
There's widespread confusion about the Canadian wage subsidies, and as a Canadian payroll company, we've done our research to make sure we're ready to equip companies with the knowledge and confidence to benefit from this federal support. Join us on April 9th to learn everything you need to know from our payroll experts themselves.
Due to popular demand, we're hosting a part two for this webinar. We'll be covering all the uncovered topics and unanswered questions from the last webinar.
COVID-19 has completely altered the working landscape, and almost every Canadian business has undergone massive operational changes in the last seven days.